Thursday, January 24, 2013

Tax advice not secret like legal counsel, UK court rules

LONDON (Reuters) - Advice by accountants cannot be kept secret in the same way that legal counsel is confidential, Britain's Supreme Court ruled on Wednesday in a blow to attempts by UK insurer Prudential to keep details of a tax avoidance scheme hidden from the taxman.

The ruling comes at a time when public anger over corporate tax avoidance is running high in Britain and parliamentarians are considering changing the law to make it harder for the likes of Starbucks or Amazon to use inter-company transactions to cut their tax bills.

By a 5-2 majority, judges rejected Prudential's argument that legal advice by qualified professionals like accountants cannot be disclosed without the client's consent, in the same way that discussions with lawyers are protected.

The ruling means that firms will not be able to duck out of producing documents requested by tax inspectors by invoking an ancient right of confidentiality.

The case stemmed from a tax avoidance scheme devised by PricewaterhouseCoopers (PwC) in 2004 and adopted by Prudential, which later refused to hand over documents to the taxman on the basis they contained advice from PwC which was protected by legal professional privilege.

Developed over hundreds of years in English common law, the rule of legal professional privilege means that communications between lawyers and their clients are absolutely confidential.

"The consequences of allowing Prudential's appeal are hard to assess and would be likely to lead to what is currently a clear and well understood principle becoming an unclear principle, involving uncertainty," wrote David Neuberger, president of the Supreme Court, in the ruling.

He said the case raised issues of policy which should not be decided by a court but rather by parliament.

Prudential and PwC declined to comment on the ruling.

"Accountants will no doubt think it is unfair, as it will drive clients concerned about maintaining confidentiality in advice provided to them into the welcoming arms of law firms," said Peter Clough, head of disputes at international law firm Osborne Clarke.

The Institute of Chartered Accountants in England and Wales (ICAEW), the main professional body representing accountants, said the ruling was "disappointing" but not the end of the road.

"The current position is unprincipled and anti-competitive for individuals and businesses who we believe should be able to seek the best professional advice upon the same terms whether from lawyers, accountants or indeed other appropriately qualified professionals," said Michael Izza, chief executive of ICAEW.

"The Supreme Court believes that issues of extending legal advice privilege are a question for parliament ... So for us, the work on getting equal treatment for our clients moves to the political field, rather than the legal courts," he said.

The Law Society, which represents solicitors, said the Supreme Court ruling had protected an important human right of clients.

"A lawyer's duties and responsibilities to the client and to the courts are not available on a pick'n'mix basis," wrote Desmond Hudson, chief executive of the Law Society.